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Open Access Publications from the University of California

R functions development for stockPortfolio package

  • Author(s): Luo, Rui
  • Advisor(s): Zhou, Qing
  • et al.

Modern portfolio theory is a statistical framework to allocate investment assets properly, with the aim of reducing risk by diversification. In the past decades, a variety of index and group models (with different covariance assumption) have been proposed to optimize the portfolio, including Single Index Model, Constant Correlation Model, Multi-Group Model, and Multi-Index Model. An R package "stockPortfolio" is developed by Drs. Christou and Diez, and fully implemented Single Index Model, Constant Correlation Model. Besides, this package also includes functions to download historical data from Yahoo Finance, build models, estimate optimal portfolios, and test portfolios. However, stockPortfolio package does not include the optimization functions for Multi-Group & Multi-Index Models with & without short selling. Besides, corresponding covariance matrix calculation functions are also not completed for these two models. My thesis will implement all these missing elements and aims to make a complete stockPorfolio package. The performance of these functions will be evaluated with multiple different historical data sets.

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